Abstract:
Interest-free banking is both one of the emerging patterns in the global economy and the
sector with the fastest growth worldwide. It is a financial system that abides by the guiding
principles of Islamic Shari'ah and is in line with the essence, ethos, and value system of the
faith. It started in Ethiopia in 2013.This study looks at three external (inflation, Exchange
rate and GDP) and three internal (bank size, liquidity management, and operating efficiency)
elements to determine the financial performance of interest-free banking by commercial
banks in Ethiopia. To evaluate financial performance, return on average assets will be
utilized as a stand-in for profit. Explanatory research design and a quantitative research
approach were used to accomplish this goal. The secondary source used to gather the data
was annual financial reports. Regression analysis was performed using E-view 10 on six
years of panel data from 2015/16 to 2020/21 of four purposefully sampled commercial banks
that were pioneers in launching the company and had well-organized data. According to the
study's findings, the financial performance of Ethiopian banks engaged in interest-free
banking is positively and significantly impacted by liquidity management, while the other
variables have a negligible effect.
